Home Today's Paper Most Popular Video Gallery Photo Gallery
Subscription Blog Signin Register
Logo
Wednesday, January 16, 2019 05:31:44 PM
Follow Us On: Facebook Twitter Twitter Twitter Twitter

Unconventional monetary policy widening income, but wealth gaps also

By
14th-Sep-2018       
Comments
Share your thought
Post a comment »
Read all () »

Anis Chowdhury and Jomo Kwame Sundaram :
In 2009, the world economy contracted by -2.2%. Growth in all developing countries declined from around 8% in 2007 to 2.6% in 2009 as the developed world contracted by -3.8% in 2009. The collapse of the Lehmann Brothers investment bank in September 2008 symbolized the US financial crisis that triggered the Great Recession of 2008-2009.
In its immediate aftermath, a new consensus reversed the neoliberal Washington Consensus of the last two decades of the 20th century. Proclaimed by the G20's London Summit of 2 April 2009, it envisaged return to Keynesian macroeconomic policies, including large-scale fiscal stimulus, supported by expansionary monetary policy.
The new policies were largely successful in tempering the recession, although much more should have been done. But with modest recovery, public debt, not economic stagnation, was soon sold as public enemy number one again.
G20 leaders at the June 2010 Toronto Summit turned to 'fiscal consolidation', with monetary policy accommodation to 'contain' its contractionary consequences, and 'structural' (mainly labour market) reforms, ostensibly to boost growth, especially in advanced economies. Meanwhile, despite G20 leaders' pledges eschewing protectionism, trade restrictions grew.
Synchronized fiscal consolidation precipitated some Eurozone sovereign debt crises. Soon, several Eurozone countries experienced double dip recessions, as unemployment in Greece and Spain rose well over 25% following punitive policies required to qualify for European Union and International Monetary Fund (IMF) funding which mainly went to creditors.
Economists' complicity
Misleading, ideologically-driven empirical analyses claimed to support the new policy reversal. Alesina and his associates promoted the idea of 'expansionary fiscal consolidation', that contractionary government expenditure cuts would be more than offset by private spending expansion due to boosted investor confidence.
Then, Reinhart and Rogoff exaggerated the dangers of domestic debt accumulation. Although soon exposed for major methodological flaws and suppressing relevant information, these studies had served their purpose.
The IMF Fiscal Monitor ahead of the June 2010 G20 Summit grossly exaggerated public debt's destabilizing effects, advocating rapid fiscal consolidation instead. Later, the IMF admitted it had underestimated the fiscal multiplier and hence potential growth from such debt!
Faltering recovery and rising unemployment in the Eurozone caused the public debt-GDP ratio to rise instead. Meanwhile, supposedly unavoidable short-term pain caused prolonged suffering for millions without the promised medium- and long-term gains.
UN ahead of the curve
Besides the Bank of International Settlements' legendary William White, the United Nations was ahead of the curve, not only in warning of the impending crisis, but also by providing appropriate policy advice, albeit largely ignored.
For example, the United Nations 2006 and 2007 World Economic Situation and Prospects (WESP) warned of instability and growth slowdowns due to disorderly adjustment of growing macroeconomic imbalances among major world economies. WESP warned that falling US house prices could cause defaults to spike, triggering bank crises.
The IMF and the OECD simply ignored such warnings, projecting rosy futures, and a 'soft landing' at worst.
The April 2007 IMF World Economic Outlook (WEO) emphatically dismissed widely held concerns about disorderly unwinding of global imbalances, claiming economic risks had subsided.
The July 2007 issue claimed: "The strong global expansion is continuing, and projections for global growth in both 2007 and 2008 have been revised up".
The OECD June 2007 Economic Outlook insisted that the US slowdown was not heralding a period of worldwide economic weakness. "Rather, a 'smooth' rebalancing was to be expected, with Europe taking over the baton from the United States in driving OECD growth… Indeed, the current economic situation is in many ways better than what we have experienced in years."
Although the IMF's November 2008 WEO belatedly acknowledged the crisis' severity, it forecast global recovery of 2.2% in 2009, suggesting the worst was over, thus supporting the reversal from fiscal expansion to consolidation.
Depicting the 'green shoots' of recovery as self-sustaining, fiscal stimulus was abandoned after selective financial bailouts.
The IMF and OECD recommendations of structural reforms and fiscal consolidation have since failed to provide the long awaited, sustained global economic recovery.
The President of the UN General Assembly set up a commission led by Nobel laureate Joseph Stiglitz to study the crisis' impact, especially for development, and recommend policies to prevent future crises. Yet, most remain unaware of its wide-ranging findings and policy recommendations, including international financial architecture reforms and reregulating finance to better serve the real economy.
The UN Secretary-General proposed a Global Green New Deal in 2009 to accelerate economic recovery and job creation while addressing sustainable development, climate change and food security. It envisioned massive, multilateral, cross-subsidized public investments in renewable energy and smallholder food production in developing countries.
The UN also consistently advocated policy coordination and warned against prematurely ending recovery efforts.
Missed opportunity, heightened vulnerability
With UN and similar policy advice largely ignored, global economic recovery has remained tepid for the last decade. This has prompted the 'secular stagnation' thesis obscuring the role of political and policy failures and missed opportunities.
Unconventional monetary policy, e.g., 'quantitative easing', has also widened income and wealth gaps besides fuelling financial asset bubbles. Earlier capital inflows are now exiting following monetary policy normalization in the West and new fears of emerging market vulnerabilities.
Having failed to ensure robust recovery despite accumulating more debt, both developed and developing countries have less policy and fiscal space to address the looming problems threatening them.
Meanwhile, the redistributive potential of fiscal policy has been weakened by reducing progressive direct taxes and increasing regressive indirect taxes, while cutting social expenditure. Also, powerful vested interests have blocked attempts to limit obscene executive remuneration and enforce minimum wages, arguing that such measures discourage business and job creation.
Also, the hyped notion of 'inclusive inequality' has served to justify rising economic disparities, by arguing that deregulation has enabled wealth accumulation and middle class expansion.

(Anis Chowdhury, Adjunct Professor at Western Sydney University (Australia), held senior United Nations positions in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007).

Tariff
Add Rate

News Archive

Inside The New Nation

Editorial »

Don't waste public money in the name of development projects


A Bridge built 22 years ago over a canal at Chilarkandi village in Moulvibazar's Kulaura upazila remains unused as it has no approach roads. The incident may be cited as a bright example of lack of coordination among the relevant departments and total waste of public money. The 12-metre long ...

Sports »

Ukraine's Dayana Yastremska (left) is congratulated by Australia's Samantha Stosur after winning their first round match at the Australian Open tennis championships in Melbourne, Australia on Tuesday.


Sports »

Serena Williams returns to Australian Open with emphatic win


AP, Melbourne :Serena Williams jumped straight back in where she left off at the Australian Open, returning for the first time since winning the title in 2017 when she was pregnant with her first child.Williams conceded only five points in the first set and was completely clinical in a 6-0, ...

International »

Iran satellite, that US was wary about, fails to reach orbit


AFP, Tehran  :Iran launched a satellite criticised by the United States on Tuesday but it failed to reach orbit, state television quoted the telecommunications minister as saying."The Payam satellite was successfully launched this morning with the Basir satellite carrier. But the satellite unfortunately failed to be placed in orbit in ...

International »

Model claiming Trump's 'Russia secret' goes to trial over "sex scandal"


AFP, Pattaya :A Belarusian model who sensationally claimed she had proof of Russian efforts to help Donald Trump win office appeared in court Tuesday for the expected start of her trial over running a "sex training course" in Thailand.Anastasia Vashukevich, known by her pen name Nastya Rybka, has been held ...

City »

Nepalese envoy makes farewell call on PM


Outgoing ambassador of Nepal to Bangladesh Prof. Dr. Chop Lal Bhusal and his spouse made a farewell call on Prime Minister Sheikh Hasina at her office here on Tuesday.  Dr Bhusal thanked the Prime Minister for her government's support in discharging his duties in Bangladesh. He particularly recalled the support ...

Entertainment »

Apurba, Safa Kabir in Nazia Hasan’s story


Sheikh Arif Bulbon :Safa Kabir and Apurba worked together as a pair in Valentine’s Day special play titled Tumi Bolley. Story of the play was written by Apurba’s wife Nazia Hasan Adity for the first time.Apurba and Safa played in roles of Aayan and Hridita respectively in this romantic story ...

Cricket »

Olivier sparks South Africa to sweep of Pakistan


Duanne Olivier sparked a Pakistan collapse as South Africa completed a series clean sweep with a 107-run win on the fourth day of the third and final Test at the Wanderers Stadium on Monday.Starting the day on 153 for three, Pakistan lost their remaining seven wickets for 120 runs to ...

Sports »

Emotional Wozniacki launches Australian Open defence


Caroline Wozniacki fought back tears after launching her Australian Open defence with a convincing 6-3, 6-4 win over Alison Van Uytvanck of Belgium on Monday.The third seed won her maiden Slam at Melbourne Park last year but has since been diagnosed with rheumatoid arthritis, a debilitating auto-immune disease that has ...

City »

Jatiya Press Club President Saiful Alam along with other journalists' leaders greet newly appointed Information Minister Dr Hasan Mahmud with bouquet at the Jatiya Press Club on Monday.


Editorial »

Unplanned sand extraction from rivers to trigger mighty erosion


UNABATED sand lifting from the Dhaleshwari River in Tangail could result in losing vast locality to river erosion. Dhaleshwari, a tributary of the Jamuna, flows through Tangail Sadar and the influential sand traders with illicit nexus with political high-ups are using powerful dredging machines to lift sand near Porabari Bazar ...

International »

Turkey hits back at Trump threats over Kurds


AFP :Turkey on Monday vowed to keep up the fight against a US-backed Kurdish militia it views as terrorists after Donald Trump warned of economic devastation if Ankara attacks Kurdish forces as American troops withdraw.Trump's threat came after Ankara repeatedly threatened a new cross-border operation against the Kurdish People's Protection ...

Entertainment »

I am ok with my attention grabbing assets: Anveshi Jain


ALT Balaji’s Gandii Baat, seems to have hit it out of the park once again. Season 2 was applauded for it's out of the box content, striking performances, and enrapturing screenplay. But overshadowing every good thing about the show, the leaked lesbian lovemaking scene between Anveshi Jain and Flora Saini ...

Sports »

Serena shooting for Slam history


AFP, Melbourne :Serena Williams has adopted a low profile ahead of the Australian Open, but rival players admit the American's shadow looms large in Melbourne as she eyes a record-equalling 24th Grand Slam crown.Williams won her 23rd title and seventh at Melbourne Park while eight weeks pregnant two years ago, ...

Cricket »

India call up Shankar, Gill to replace suspended pair


India Sunday called up all-rounder Vijay Shankar and batsman Shubman Gill for their Australia and New Zealand tours after KL Rahul and Hardik Pandya were ordered home in disgrace over comments made about women. Rahul and Pandya were axed ahead of India's opening one-day international against Australia in Sydney on ...

 
Items that you save may be read at any time on your computer, iPad, iPhone or Android devices.
 
Are you new to our website? Do you have already an account at our website?
Create An Account Log in here
Email this news to a friend or like someone
Email:
Write a comment to this news